Analyst gives opinion on Restaurant Brands Internationals new strategy to revive Burger King

Restaurant Brands Internationals (NYSE:QSR)

Bank of America commented on Restaurant Brands Internationals (NYSE:QSR) choice to make significant investments in the Burger King company.

Even during quarters where they underwent major menu innovation or menu news, Burger King has continuously lagged behind chained fast food hamburger restaurants over the past five years, according to analyst Sara Senatore. It is not expected that the $200 million invested in remodeling 800 outlets can narrow the gap between the Wendys (WEN) and McDonalds (MCD) systems.

According to popular thinking, a system needs to be rebuilt in at least half before the effect is felt on consumer impression. The typical remodel cost per store is also lower than the costs per store for MCD ($750,000) and WEN ($330,000 avg). Although franchisees will likely co-invest, there is a risk that the impact will be muted. Only nearly a third of BK US shops had undergone remodeling as of 1Q22. This compares to 72% of Wendys stores and 90%.

Forecast stock outlook

BofA kept the QSR rating at Underperform. Evercore ISI expressed a more favorable opinion of the QSR strategy elsewhere on Wall Street. In their opinion, it is wise to sacrifice one years worth of cash flows in order to repair the brand.

Despite these investments, QSR currently trades at 17x our 2023 FCF estimate compared to MCD and YUM at almost 25x. Since 2018, Burger King US EBITDA has been constant at an estimated $400 million as AUV has climbed by 5% while net units have declined by 5%, the report said.

Evercore has a $400 price target and an outperform rating for QSR.

In July, the Seeking Alpha Quant Rating for QSR changed from Buy to Hold.

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